As Big “I” members work to determine how the new tax law applies to them, the Treasury Department has announced it will not issue clarifying rules until December.

A key provision of the new tax law creates a section in the individual tax code (26 U.S.C. §199A) that allows for a 20% deduction on “qualified business income” (QBI) for owners and shareholders of pass-through businesses.

Two-thirds of Big “I” member agencies are organized as pass-through entities, and many should be able to benefit from the new deduction in whole or in part. However, it is currently unclear whether insurance agencies and brokerages will be able to receive the full benefit of this deduction.

The outstanding issue for many Big “I” member agencies is if the sale and servicing of insurance is considered a “specified service trade or business” in any implementing regulations or guidance on the new law. This is important because the law prohibits an owner or shareholder of a “specified service trade or business” with annual taxable income above $415,000 (joint) and $207,500 (single) from utilizing the new deduction. 

The information released by Treasury indicates that it intends to propose three rules to implement Section 199A. The first will deal with anti-abuse provisions, the second rule will provide definitional guidance necessary to compute the deduction, and the third will address computational questions. The Big “I” is disappointed that guidance will not be issued sooner but will continue to work with the Treasury Department closely on this issue.

The Big “I” is working with a coalition of other producer groups to advocate on this issue before the Treasury Department. In April the coalition sent a letter to key Treasury Department officials and had a meeting with the Department. As a follow up from the meeting, the coalition recently sent another letter to the Treasury Department.

The Big “I” is hopeful that any implementation regulations or guidance will treat agents and brokers appropriately.

The Big “I” believes that Congress did not intend to limit insurance agency owners from receiving the full benefits of the pass-through deduction because Congress specifically excluded the word “insurance” from the definition of a “specified service trade or business” in the new law. Furthermore, interpreting the pass-through provisions of the law in a narrow and exclusionary manner is against the broad public policy goals of the law— to create jobs and grow the economy.

Jennifer Webb is Big “I” federal government affairs counsel.